Monetary Policy.
In plain English
Monetary policy is the set of tools a central bank uses to influence how much money and credit flow through the economy, mainly by raising or lowering short-term interest rates. When the Fed cuts rates, borrowing gets cheaper and spending tends to rise; when it hikes, borrowing costs more and the economy cools. The goal in the US is a dual mandate: stable prices and maximum employment. Monetary policy is separate from fiscal policy, which is the government's taxing and spending.
01Why it matters
Monetary policy moves the interest rates on your mortgage, savings, and credit cards, so it touches nearly every borrowing and saving decision you make.
02The math, step by step
To fight high inflation, the Fed raises its benchmark rate several times. Mortgage and credit card rates climb, borrowing slows, and price increases gradually ease.
03What this is NOT
Monetary policy is NOT fiscal policy. Monetary policy is the central bank moving interest rates and the money supply; fiscal policy is the government deciding taxes and spending.